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discussion papers

FS IV 99 - 30

Regulating Complementary Input Supply:

Production Cost Correlation and Limited Liability

Jos Jansen

December 1999

ISSN Nr. 0722 - 6748

Forschungsschwerpunkt Marktprozeß und Unter- nehmensentwicklung Research Area

Market Processes and Corporate Development

Zitierweise/Citation:

Jos Jansen, Regulating Complementary Input Supply:

Production Cost Correlation and Limited Liability,

Discussion Paper FS IV 99 - 30, Wissenschaftszentrum Berlin, 1999.

Wissenschaftszentrum Berlin für Sozialforschung gGmbH, Reichpietschufer 50, 10785 Berlin, Tel. (030) 2 54 91 - 0

ABSTRACT

Regulating Complementary Input Supply: Production Cost Correlation and Limited Liability

by Jos Jansen

We study the optimal regulation of complementary input supply. The regulator chooses for either a monopolist producing two complementary inputs in fixed proportion, or two independent firms producing one input each. Under independent input supply, non- monotonic regulatory schemes become optimal for high correlation between input production costs. The optimal regulatory choice depends on the correlation between costs, and on the producers’ liability structure. Under limited liability monopolistic input supply gives a higher expected welfare whenever the correlation coefficient is sufficiently small and positive. For higher correlation independent input supply is chosen, and the regulatory scheme is non-monotonic in total costs.

ZUSAMMENFASSUNG

Regulierung des Angebots komplementärer Inputs: Korrelation von Produktionskosten und beschränkte Haftung

Dieser Beitrag untersucht die optimale Regulierung des Angebots zweier komplemen- tärer Inputs. Der Regulierer entscheidet sich dabei entweder für einen Monopolisten, der zwei komplementäre Inputs in einem konstanten Verhältnis zu einander produziert oder für zwei unabhängige Firmen, die jeweils einen der Inputs produzieren. Bei unabhän- gigem Angebot des Inputs sind nicht monotone Regulierungsverträge optimal für den Fall einer hohen Korrelation zwischen den Produktionskosten der Inputs. Die optimale Regulierungsentscheidung hängt von der Korrelation zwischen Kosten und der Haftungsstruktur des Produzenten ab. Bei beschränkter Haftung führt das Inputangebot durch einen Monopolisten zu einer höheren erwarteten Wohlfahrt, wenn der Korrela- tionskoeffizient klein genug und positiv ist. Für höhere Korrelation wird das unabhän- gige Angebot der Inputs gewählt und die Regulierungsverträge sind hinsichtlich der Gesamtkosten nicht monoton.

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